Three Ingredients for a 21st-Century World Bank

Three Ingredients for a 21st-Century World Bank

Three Ingredients for a 21st-Century World Bank

Commentary

5 min read

David Malpass starts his term on 9 April as the World Bank’s 13th president. His previous criticisms of the bank and statements about multilateralism having gone “too far” have raised eyebrows in some quarters, but his confirmation creates the opportunity to shake things up in this major institution that has underpinned the world order for nearly 75 years. Malpass could make the World Bank more pragmatic, more responsive and less theoretical—not least in Africa.

In a world undergoing profound technological, geopolitical and economic change, the World Bank faces some big strategic decisions about its role of providing policy advice and disbursing $45 billion a year in loans, grants and private-sector investments. Despite excellent initiatives such as Maximising Finance for Development and the Human Capital Project launched by outgoing President Jim Yong Kim, the bank hasn’t yet adapted to the needs of the world’s poorest and most fragile countries. That is particularly because the bank’s internal bureaucratic systems and structures don’t allow it to move fast enough to respond to the needs of developing nations.

As a result, despite its many strengths and the high calibre of its staff, the World Bank cannot match the rising influence that states such as China, Turkey and India have in the developing world today—although Malpass, like many in the administration of US President Donald Trump, has expressed worries about China’s growing influence. What is clear is that the bank is not suited to the developmental challenges the world will face in the coming decades.

To rectify this, Malpass should focus on three priorities: Africa, responsiveness and speed.

In a world undergoing profound technological, geopolitical and economic change, the World Bank faces some big strategic decisions about its role.

First, there must be a real pivot to Africa and fragile states—one that goes beyond high-level initiatives. Population growth in Africa is set to boom over the next 30 years, while the bank’s own calculations show that countries such as Nigeria and the Democratic Republic of the Congo will experience significant increases in extreme poverty. The institution must therefore place a proper priority on the needs of these nations: one vice-president for 48 African countries is simply unacceptable.

The bank should also put aside ill-conceived prejudices about industrial policy and help the continent achieve its long-awaited agriculture revolution. Without success in Africa, one might as well forget about the bank’s twin goals of eliminating extreme poverty by 2030 and boosting shared prosperity.

Second, the World Bank needs to improve the focus on governments and their priorities. The bank must accept that government is political, and hence it should be more comfortable operating in a political environment. The bank itself doesn’t have to be political, but it has to allow for the fact that policymaking mostly happens in a non-technical environment. Governance is not merely about accountability and transparency. Efforts here should be complemented by a serious improvement in how the bank helps governments build their capacity to deliver and get things done. The constant drive for large projects and big disbursements shouldn’t be a barrier here.

Third, the World Bank needs to move faster. All 14 governments our Institute works with in Africa say the bank’s sluggishness is a reason why they turn to China to respond to their vast infrastructure requirements. The bank needs greater urgency to implement the long-overdue reforms to its procedures to allow financing and other instruments to flow faster, while maintaining important quality-assurance measures and environmental standards.

The developing world needs a World Bank that cuts red tape, reduces its transaction costs and better aligns the incentives of its staff with the real demands of developing countries, not of its main shareholders. There is a need for a proper merit-based system in which staff are incentivised by how well they meet the requirements of developing countries and deliver outcomes, not by how many loans they sign. The bank should be organised in the service of partner countries, rather than financial instruments.

As part of this, the bank should align its policies more closely with the leaderships of the countries it works with. The bank should seek to provide an ecosystem of support to such leaders, starting with a decentralisation of its resources to country offices. Despite country partnership frameworks, staff still have too much discretion to work on what they are interested in, rather than what a nation needs. A collaborative approach and the genuine mutual ownership of analysis, research, project design and country partnership frameworks—not just in theory—are essential.

The developing world needs a World Bank that cuts red tape, reduces its transaction costs and better aligns the incentives of its staff with the real demands of developing countries.

As well as building better partnerships with countries, the bank needs smart and strategic partnerships with other multilateral banks, development institutions, development finance institutions, think tanks and academics at the forefront of thinking on issues such as education learning, the private sector and tech firms. The bank should also fund cutting-edge organisations, no matter how small, to scale up their work. And it needs to take a leaf out of not only China’s book but also those of Germany, Sweden and the UN Industrial Development Organisation to enable investment that will create jobs in the world’s poorest countries. These reforms should cut costs and make the bank more agile and effective.

The World Bank has been through a number of changes in its history, including many under Kim that haven’t delivered the results needed. The nomination of Malpass suggests the bank could dramatically alter its course. But as well as putting in place its own vision and priorities, the institution must make itself more relevant to the 21st century. By aligning its internal staff incentives to the needs of developing countries, rather than merely those of its Washington headquarters, the bank can help countries become self-reliant, eliminate mass poverty and maintain its position as a central institution in the global order.

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